Hockey Canada’s Humbling Lesson for Boards

Over the past few months, Canadians watched in shock as disturbing practices at Hockey Canada were revealed. Chief among these was that hockey’s governing body set up a fund to settle sexual assault claims. Many hockey parents and players were outraged to learn that their registration fees were used to settle those lawsuits.

In October, a damning report by retired Supreme Court justice Thomas Cromwell detailed many of Hockey Canada’s governance problems. Facing pressure from governments, sponsors, parents and players, the entire board of directors resigned.

What can we learn from these events? The saga at Hockey Canada is an extreme case of governance failure and a textbook example of what not to do in the exercise of director responsibilities. But it would be wrong to dismiss the mistakes by the board as an outlier. Instead, boards everywhere are prone to similar errors. Anyone who serves on a board or who cares about good governance should learn from what happened at Hockey Canada.

In addition to governance flaws noted in Justice Cromwell’s report, three ingredients mixed together led to Hockey Canada’s recipe for a disaster. The first was the resistance of the organization’s board to fire its CEO. Either the board felt powerless to exercise its control function or was simply unwilling to do so.

Second, despite the depth of expertise around the table, the board appeared disconnected from the reality of the situation as public outrage grew and sponsors pulled funding. In other words, the board didn’t read its room of stakeholders.

Third, the defensive tone displayed by Hockey Canada’s leadership at parliamentary hearings, and the subsequent collective resignation of the directors, left the impression that strong groupthink was at work, fuelled by blind faith among board members in their own moral judgment. That blind faith likely prevented the board from realistically assessing and effectively dealing with Hockey Canada’s problems.

Now, let’s take a closer look at each of these three issues and how they often show up in board situations.

Lack of control

A reluctance to exert control over management is much more prevalent among boards than one might think. Because they view their directorship as a “service”, board members typically focus their energy on value creation and view their role as maintaining a positive relational atmosphere with other board members and the organization’s management. Indeed, why would someone serve as a volunteer on a board to play the bad cop, risk one’s reputation and spend time fighting opponents?

This concern was apparent in the resignation letter of Hockey Canada’s interim board chair, Andrea Skinner, when she wrote in October that “upon reflection, it is clear to me from recent events that it no longer makes sense for me to continue to volunteer my time” with the organization. 

Although seemingly understandable, a service attitude among board members is problematic. It is directly at the expense of a board’s control function. The primary objective of a board, after all, is to evaluate performance and assess the existence of opportunistic behaviours among management. Furthermore, board service, even when volunteered, is never completely free or without benefits. Directorship carries significant rewards in social status, professional recognition, career development and, in some cases, gifts. 

Misused expertise

Boards typically assume that to be effective directors need to possess the right type of expertise. From this point of view, Hockey Canada’s governance failure is hard to explain. Our background analysis of the directors does not suggest an absence of expertise. On the contrary, the accumulation of relevant and diverse professional experiences around the table was quite impressive.

Thus, the dysfunction at Hockey Canada is a critical reminder that board-member expertise must be applied. Seeking experts with the “right” knowledge should not be a mechanical process of checking off professional credentials and past experience (as unfortunately is too often the case). Instead, the process of selecting board members for their relevant knowledge should be part of a substantial assessment of how “experts” define their role and envision their application of expert knowledge on the board. 

Board morality

When news stories broke about the existence of Hockey Canada’s sexual assault fund, many people likely expected that its board would act quickly to fix an obvious PR problem. But instead of decisive action, Hockey Canada answered with defensive inaction. That left the impression that the organization’s board members were living in an alternate reality, disconnected from the outside world. Alas, this is far from a unique phenomenon. Our governance studies show that boards are often out of touch with what most people deem is the right thing to do.

This disconnection is typically caused by a lack of reflexivity and a justification of directors’ thought processes. Consider, for example, the design of executive compensation. Many people think CEOs are paid too much, especially when compared to the average employee salary. But executive compensation is often dictated by benchmarks and comparisons to other executive pay packages. When under this “rational” influence, directors are unlikely to question the morality of high executive compensation because “what is right” is dictated by market forces. Thus, board members can have a hard time understanding public indignation over CEO pay.

One could say the same thing about Hockey Canada’s board. Its members seemingly were caught off guard when millions of Canadians wondered why the same non-profit that’s involved in Timbits hockey was settling sexual assault lawsuits for Team Canada players, and using kids’ hockey registration fees to do so.

The perfect storm that destroyed Hockey Canada is a humbling lesson for boards across the country, regardless of the size and shape of the organizations involved. The desire to serve without control, misuse expertise or overestimate board morality are constant threats to good governance.

Bertrand Malsch is an associate professor of accounting and the PricewaterhouseCoopers/Tom O'Neill Fellow of Accounting at Smith School of Business. Marie-Soleil Tremblay is a professor of accounting at École nationale d'administration publique. A version of this article in French first appeared in La Presse.